The spread of longevity risk transfers outward from the UK and North America across other European markets is inevitable, according to a US reinsurance provider.

Prudential Financial, a US reinsurance firm, said it expected the nearly $250bn (€224bn) longevity reinsurance market to almost double in five years, fuelled by the spread of the market over the continent.

Speaking at the International Longevity Risk and Capital Markets Solutions conference in Lyon, Amy Kessler, head of longevity reinsurance at Prudential, said the market was expanding.

“Globalisation is just beginning, with activity spreading quickly from the US, the UK, Canada and the Netherlands to France, Germany, Switzerland, the Nordics, Australia and beyond,” she said.

“Continued growth in the longevity risk transfer market is inevitable.”

Kessler said innovation was behind the growth, with larger transactions becoming easier to structure and pension schemes reducing costs by accessing reinsurance markets directly.

Reinsurers transact only with other insurance companies or banks, which means longevity swaps from defined benefit (DB) schemes are intermediated.

This changed in the Europe in 2014, with two UK deals that saw direct transactions with reinsurers, either via sponsor insurance companies or insurance cells.

Earlier this year, Kessler told IPE that Prudential expected the use of insurance cells instead of transitional mediation to become the new norm for longevity swaps.

At the time, Kessler said Prudential had not seen any deals come through using the traditional process – and warned that UK schemes were continuing to flood the global reinsurance market.

This allows pension funds to save on costs and benefit from better pricing by avoiding price averaging, which occurs when intermediary insurers or banks engage with several reinsurers to spread credit and counterparty risks, as well as exposure limits.

Four of the five deals in 2014 used this process.

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